Effects of a Strong Or Weak Philippine Peso Currency
Two conflicting stories came out of a national paper this week. One announced that exporters are badly hurt by the appreciating peso while the other states that the Bangko Sentral ng Pilipinas (BSP) claims that the surging currency is beneficial to the Philippine economy. Those stories seem to tell the Filipinos that we can not have our cake and eat it too. Whenever there is a good effect, there is a corresponding draw back. Let us take the first statement. There are two types of exporters. One is who imports raw materials, processes it and exports the finished product. The other is one who buys or produces the raw material locally, processes it and exports the result. In the first case, we export only labor. In the second, we export labor and raw material converted by labor into finished product. When the peso is weak, more pesos are spent to buy raw materials. The product is sold to earn a strong dollar. Then labor is paid in weak peso.
When the peso is strong, there will be less pesos absent acquiring raw material. Then the finished product is sold earning weak dollars. There will be more dollars needed to pay labor in strong pesos. What exporters are afraid of is our finished product will be less competitive in the world market if a strong peso raises production costs. Labor costs will rise because there will be more dollars to be converted to pesos to be sent for labor. What will be affected are the export processing zones. Finished products will be less competitive in the world market. Profits will dive and factories may close.
On the other hand, the quality of the peso in the world market is raised. We will need less pesos to service our external debt in dollars. There will be more investors coming because they can earn more than when the peso is weak. Philippine economy will be stronger. There will be more investors coming because the strong peso earned will compensate their efforts. The BSP argues that the peso surge is but temporary. Market forces will indeed force the peso to seek its level. Overseas workers are the ones responsible for the strong peso. When remittances slow down the peso will depreciate. There is a tendency for the overseas workers to live permanently in the place where they work if the government of the country will allow.
The sad part of the business is that even if the peso appreciates, it is never felt locally. Local prices will remain the same. Take for example oil products. If the world market for liquid petroleum gas rises, our local prices rise along with it. If it falls the peso price for Liquified Petroleum Gas (LPG) will remain the same. Even if the peso appreciates, there is still no roll back in LPG prices. There must be something wrong with our economics.
Perhaps we would be much thankful that the peso appreciates. We are an importing country. Since birth we have been conditioned to believe that anything imported is excellent. Imported wines, whiskeys, cigarettes, chocolates, perfumes and cars are better appreciated than local products. With the appreciating pesos, plus the General Agreement on Trade and Tariff all imported luxuries will now be within the reach of the locals. The incoming dollars will go out again. Our overseas workers will have to stay longer if not forever just to keep our economy afloat. While economy is on the rise, we do not institute measures to keep it up.
Our economic planners must pull their acts together. We still are not aware how the strong peso affects the small and medium enterprises. If there is any benefit from the surging currency, the influence must be felt locally in any way otherwise the natives will never be able to benefit from the situation. Is the healing peso beneficial or detrimental?
Source: Joe Espiritu